Applying Agreed-Upon Procedures: Airport and Airway Trust Fund	 
Excise Taxes (20-NOV-03, GAO-04-214R).				 
                                                                 
We have performed the procedures contained in the enclosure to	 
this report, which we agreed to perform and with which the	 
Inspector General (IG) concurred, solely to assist it in	 
ascertaining whether the net excise tax revenue distributed to	 
the Airport and Airway Trust Fund (AATF) for the fiscal year	 
ended September 30, 2003, is supported by the underlying records.
As agreed, we evaluated fiscal year 2003 activity affecting	 
distributions to the AATF.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-214R					        
    ACCNO:   A08917						        
  TITLE:     Applying Agreed-Upon Procedures: Airport and Airway Trust
Fund Excise Taxes						 
     DATE:   11/20/2003 
  SUBJECT:   Excise taxes					 
	     Trust funds					 
	     Fund audits					 
	     Allocation (Government accounting) 		 
	     Airport and Airway Trust Fund			 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-04-214R

United States General Accounting Office Washington, DC 20548

November 20, 2003

The Honorable Kenneth M. Mead Inspector General Department of
Transportation

Subject:	Applying Agreed-Upon Procedures: Airport and Airway Trust Fund
Excise Taxes

Dear Mr. Mead:

We have performed the procedures contained in the enclosure to this
report, which we agreed to perform and with which you concurred, solely to
assist your office in ascertaining whether the net excise tax revenue
distributed to the Airport and Airway Trust Fund (AATF) for the fiscal
year ended September 30, 2003, is supported by the underlying records. As
agreed with your office, we evaluated fiscal year 2003 activity affecting
distributions to the AATF.

In performing the agreed-upon procedures, we conducted our work in
accordance with U.S. generally accepted government auditing standards,
which incorporate financial audit and attestation standards established by
the American Institute of Certified Public Accountants. These standards
also provide guidance for performing and reporting the results of
agreed-upon procedures.

The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform include (1) detailed tests of transactions
that represent the underlying basis of amounts distributed to the AATF,
(2) review of the Internal Revenue Service's (IRS) quarterly AATF
certifications, (3) review of the Department of the Treasury Financial
Management Service (FMS) adjustments to the AATF for fiscal year 2003, (4)
review of IRS's precertification1 of receipts for the third quarter of
fiscal year 2003 (5) review of certain procedures of the Department of the
Treasury Office of Tax Analysis' (OTA) estimation procedures affecting
excise tax distributions to the AATF for the fourth quarter of fiscal year
2003, and other procedures including (6) the comparison of net excise tax
distributions to the AATF during fiscal year 2003 and amounts reported in
the draft financial statements prepared by the Bureau of the Public Debt

1To accommodate the Department of Transportation's accelerated reporting
date for fiscal year 2003, IRS performed a precertification of excise tax
collections for the quarter ended June 30, 2003. The data are for
information purposes only and the precertification does not constitute an
official certification.

        GAO-04-214R Airport and Airway Trust Fund Excise Tax Procedures

(BPD) for the AATF and the Federal Aviation Administration's (FAA) draft
consolidated financial statements, (7) detailed tests of transactions that
represent total IRS tax revenue receipts and refunds, and (8) review of
key reconciliations of IRS records to Treasury records. The enclosure
contains the agreed-upon procedures and our findings from performing each
of the procedures.

We were not engaged to perform, and did not perform, an audit, the
objective of which would have been the expression of an opinion on the
amount of net excise taxes distributed to the AATF. Accordingly, we do not
express such an opinion. Had we performed additional procedures, other
matters might have come to our attention

                                       2

that would have been reported to you. We completed the agreed-upon
procedures
on November 7, 2003.

We provided a draft of this report to IRS and OTA officials for review and
comment.
They agreed with the results and findings presented in this report. In
response to our
findings concerning errors in its estimates, OTA stated that it has
instituted additional
internal control procedures to promptly detect and correct any future
errors.

This report is intended solely for the use of the Office of Inspector
General of the
Department of Transportation and should not be used by those who have not
agreed
to the procedures and have not taken responsibility for the sufficiency of
the
procedures for their purposes. However, this report is a matter of public
record and
its distribution is not limited. Copies are available to others upon
request. This
report is also available at no charge on GAO's Internet Web site at
http://www.gao.gov. If you have any questions, please call me at (202)
512-3406.

Sincerely yours,

Steven J. Sebastian

Director
Financial Management and Assurance

Enclosure

2In our report on the results of our audit of IRS's fiscal year 2003
financial statements, we noted a material weakness in IRS's financial
reporting process (U.S. General Accounting Office, Financial Audit: IRS's
Fiscal Years 2003 and 2002 Financial Statements, GAO-04-126, November 13,
2003). A component of this process includes IRS's ability to allocate
excise tax collections to the appropriate trust funds at the time deposits
are made. This condition affects the adequacy of the distributions of
federal excise tax revenue to recipient trust funds and is a continuation
of an issue that we have reported on in prior years.

     Page 2 GAO-04-214R Airport and Airway Trust Fund Excise Tax Procedures

        Airport and Airway Trust Fund Excise Tax Procedures and Results

I. Detailed tests of transactions that represent the underlying basis of
amounts distributed to the AATF in fiscal year 2003

A. 	Nonrepresentative selection of tax returns from the quarter ended
September 30, 20023

1. 	For the quarter ending September 30, 2002, select the 30 largest
excise tax returns containing excise taxes related primarily to the AATF
and the

4

Highway Trust Fund (HTF), on the basis of total tax liability amount, from
IRS's master file.5

Description of findings and results

We selected the 30 largest excise tax returns related primarily to the
AATF and the HTF from the quarter ended September 30, 2002, for testing.
The selection was based on the total tax liability amount and type of
taxes owed, for each return, from IRS's master file.

The total tax liability amount related to these 30 returns was
approximately $8.6 billion, or 66 percent of the total excise tax
liability amount -$13 billion -for all excise tax types for the quarter
ended September 30, 2002.

Of these 30 returns, 8 contained primarily AATF-related taxes and 22
contained primarily HTF taxes.

2. 	For each of the 8 returns related primarily to the AATF, we performed
the following procedures, which resulted in our testing approximately $1.5

3Since certifications are not completed until 6 months after the end of
the quarter, the certification and corresponding FMS adjustment for the
quarter ended September 30, 2002, were completed in March 2003 and thus
affected fiscal year 2003 distributions to the AATF.

4Although the certifications are based on amounts collected, we used the
tax liability amounts to identify the taxpayers paying the largest amounts
of excise taxes. Our review shows that these taxpayers generally pay their
excise taxes in full each quarter.

5The master file is a detailed database containing taxpayer information.

billion in prorated collections6 affecting fiscal year 2003 distributions
to the AATF:

(a) 	Trace the liability amount for abstracts7 26, 27, and 28 from the tax
return to IRS's master file.

Description of findings and results

The liability amount for abstracts 26, 27, and 28 on the tax return agreed
with IRS's master file for 8 of the 8 returns.

(b)	Check the mathematical accuracy of the taxpayer's calculations on the
tax return for the selected abstracts.

Description of findings and results

The taxpayer's calculations on all 8 returns were mathematically correct.

(c) 	Recompute the prorated collection amount for the selected abstracts
based on information from the master file and compare this amount to the
amount from the Collection Certification System audit file.8

6IRS certifies to trust funds the amount of excise taxes collected.
Because there are occasions in which taxpayers have not fully paid their
tax liability, IRS must allocate the amount of payments actually received
among the different excise taxes reported on the taxpayer's return. IRS's
Collection Certification System prorates a taxpayer's payments
proportionately among all taxes reported as owed on the tax return. For
example, if a corporation reports that it owes $4 million for gasoline
tax, $2 million for diesel fuel tax, and $1 million for gasohol tax on its
Form 720 Quarterly Federal Excise Tax Return, but has paid IRS only $3.5
million at the time IRS performs its certification, the program prorates
the $3.5 million in the following manner: $2 million to gasoline tax, $1
million to diesel fuel tax, and $500,000 to gasohol tax.

7The abstract numbers identify the tax type (e.g., gasoline and ticket
tax) and are used as the basis for determining the distribution of the
excise taxes to the various trust funds. Abstract numbers are preprinted
on the Form 720 Quarterly Federal Excise Tax Return and are used by the
taxpayer to report excise tax assessments. If the return was related to
the AATF, we selected (1) tax on transportation of persons by air
(abstract 26), (2) tax on use of international air facilities (abstract
27), and (3) tax on transportation of property by air (abstract 28). If
the return was related to the HTF, we selected (1) tax on 10 percent
gasohol (abstract 59), (2) diesel fuel tax (abstract 60), and (3) gasoline
tax (abstract 62). The tax amounts related to the selected abstracts for
each trust fund are generally the largest tax amounts reported on the
taxpayer's excise tax return and make up over 89 percent of the total
amount certified to the AATF and over 86 percent of the total amount
certified to the HTF each quarter.

8The Collection Certification System produces what IRS refers to as "audit
files." These audit files contain the individual prorated collections, by
abstract and taxpayer identification number, that make up the certified
total amounts for each abstract.

Description of findings and results

The recomputed prorated collection amounts for the three selected
abstracts agreed with amounts in IRS's Collection Certification System
audit file for all 8 of the returns.

B. 	Dollar unit sample (DUS) of transactions from the quarters ended
December 31, 2002, and March 31, 2003

1. Sampling

(a) 	Obtain excise tax assessments and collection data from IRS's master
file for the first 6 months of fiscal year 2003. Determine if excise tax
collections per the master file agree with IRS's general ledger. Reconcile
total excise tax collections from the master file to total excise tax
collections from the Collection Certification System audit files to
determine if they materially9 agree.

Description of findings and results

Excise tax collections for the first 6 months of fiscal year 2003 per the
master file materially agreed with IRS's general ledger and with total
excise tax collections from the Collection Certification System.

(b)	Select a random attribute sample of 78 excise tax assessments from
IRS's master file.10 Compare assessment and receipt information for each
sample item from the master file to the assessment and receipt information
in the Collection Certification System to determine if assessments and
receipts from the master file are contained in the Collection
Certification System.

Description of findings and results

For each sample item, assessments and receipts from the master file were
contained in the Collection Certification System.

(c) 	To determine if the Collection Certification System properly
summarized the prorated collections, total the prorated collections for

9For the purpose of this reconciliation, material is defined as 1 percent
of the total Form 720-related excise tax collections, related to the
quarters ended December 31, 2002, and March 31, 2003. For fiscal year
2003, the materiality amount was $203 million for the two quarters
combined.

10For this sample, if one or no errors were found in testing the 78 items,
we would be 90 percent confident that the error rate in the population
would not exceed 5 percent.

selected abstracts11 from the audit files and compare these amounts to 12

amounts in the Reports of Excise Tax Collection.

Description of findings and results

The Collection Certification System properly summarized the prorated
collections for all of the selected abstracts related to the AATF and the
HTF. Prorated collections for the above-mentioned trust funds from the
audit files agreed with the corresponding amounts in the Reports of Excise
Tax Collection.

(d)	Separate the total population of prorated collections from the audit
files into the following distinct populations: (1) AATF, (2) HTF, and (3)
other excise tax abstracts. Use DUS to select a sample of prorated excise
tax collections from the AATF population.

Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of
$89 million, and an expected aggregate error amount of $26.7 million
resulted in a sample of 6713 prorated collections for AATF for the first 6
months of fiscal year 2003.

(e) 	Select samples of prorated excise tax collections from the two
non-AATF populations.

Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of
$322 million, and an expected aggregate error amount of $96.6 million

11The selected abstracts include the following: (1) tax on transportation
of persons by air (abstract 26), (2) tax on use of international air
facilities (abstract 27), (3) tax on transportation of property by air
(abstract 28), (4) tax on aviation fuel for commercial use (abstract 77),
(5) tax on 10 percent gasohol (abstract 59), (6) diesel fuel tax (abstract
60), and (7) gasoline tax (abstract 62). The tax amounts for the four
AATFrelated abstracts make up over 95 percent of the total amount
certified to the AATF and the tax amounts for the three HTF-related
abstracts make up over 86 percent of the total amounts certified to the
HTF each quarter.

12The Report of Excise Tax Collection contains prorated collections,
classified by abstracts, which serve as the basis for IRS's quarterly
trust fund certifications.

13The planned sample size using DUS was 132 items. DUS selects dollars
versus specific transaction items by dividing the population by dollar
intervals. The dollar interval for the AATF was $33 million. Accordingly,
any item with a dollar value matching or exceeding the sampling interval
would be selected, whereas items less than the sampling interval might not
be selected. For example, an item of $66 million would cover two
dollar-intervals, but represent one sample item. Due to large dollar items
covering more than one interval, the 67 unique sampled transactions
selected represent 132 dollar-intervals.

resulted in a sample of 9614 prorated collections for the first 6 months
of fiscal year 2003 for the HTF.

A random attribute sample of 45 items from the population of prorated tax
collections, related to all excise taxes other than the AATF and the HTF,
was selected for testing.15

2. Detailed tests of transactions

(a) 	For each prorated excise tax collection sampled from the AATF
population:

o  	Check to see that the assessment amount on the tax return, for the
sampled abstract, agrees with the amount recorded in IRS's master file.

Description of findings and results

The assessment amounts on the tax returns agreed with the amounts recorded
in IRS's master file for 66 of the 67 sampled abstracts. For one sampled
abstract, the IRS disallowed a credit but made a data entry error and
entered the credit into the master file. As a result, IRS overstated
prorated collections to the AATF by approximately $48,000.

o  	Check the mathematical accuracy of the taxpayers' calculations on the
tax returns for the related abstract.

Description of findings and results

The taxpayers' calculations on the tax returns for the related abstracts
were mathematically correct for all of the sampled abstracts.

o  	Recompute the prorated collection amount based on information from the
master file and compare this amount to the sample items

14The planned sample size using DUS was 143 items. As explained in
footnote 13, DUS selects dollars versus specific transaction items by
dividing the population by dollar intervals. The dollar interval for the
HTF was $118 million. Due to large dollar items covering more than one
interval, the 96 unique sampled transactions selected represent 143
dollar-intervals.

15For this sample, if no errors are found in testing the 45 items, we
would be 90 percent confident that the error rate in the population would
not exceed 5 percent.

selected from the Collection Certification System audit file.16

Description of findings and results

The recomputed prorated collection, based on information from the master
file, agreed with the amounts for all of the sampled items.

(b)	Perform detailed testing on the two samples of prorated collections
from the non-AATF populations to determine if they contain any AATF excise
tax collections.

Description of findings and results

The two samples of prorated collections from the non-AATF populations did
not contain any AATF excise tax collections.

(c) Evaluate the results of conducting steps (a) and (b).

Description of findings and results

For the first 6 months of fiscal year 2003, the net most likely error is
$282,000 with an upper error limit of $53 million at the 80 percent
confidence level. Collections go through additional calculations to
produce certification amounts for distribution. Consequently, the
magnitude of the error cannot be quantified with respect to the impact on
recorded distributions to the AATF.

II. Review of IRS's quarterly AATF certifications

A. Receipt certifications

Perform the following steps on IRS's AATF receipt certifications for the
quarters ended September 30, 2002; December 31, 2002; and March 31, 2003:

1. 	Inspect the certification letters for authorizing signatures.
Description of findings and results The certification letters for all
three quarters had authorizing signatures.

2. 	Determine if evidence exists that the supervisor or another analyst
checked the certification letters and supporting worksheets.

16The purpose of this test is to determine whether the Collection
Certification System prorates correctly. This test is not intended to
determine whether amounts provided to the system are correct.

Description of findings and results

There was evidence that another analyst and a supervisor checked the
certification letters and supporting worksheets for all three quarters.

3. 	Recalculate the totals on the certification letters to determine if
they are mathematically correct.

Description of findings and results

The totals on the certification letters for all three quarters were
mathematically correct.

4. 	Trace the certified amounts for tax on transportation of persons by
air (abstract 26), tax on use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77)17 from the certification
letters back to the

19

Reports of Excise Tax Collection18and Treasury 90 Report.

Description of findings and results

The certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) per the certification
letters agreed with the related Reports of Excise Tax Collection for all
three quarters.

However, on IRS's receipt certification for the quarter ended December 31,
2002, the IRS analyst used excise tax credit information from the Treasury
90 Report for the quarter ended September 30, 2002, rather than the
Treasury 90 Report for the quarter ended December 31, 2002. As a result,

17The certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) make up over 95 percent of
the total amount certified to the AATF each quarter.

18IRS uses data from two of these reports, covering sequential processing
intervals, for each quarterly certification. Collections are classified by
abstract on the report when the related Form 720 tax return has been
recorded in IRS's master file during the processing interval covered by
the report. The second of the two reports used may contain collections
related to previous quarters not classified by abstract until the current
quarter because the related return was not recorded on the master file
until the current quarter.

19During fiscal year 2002, IRS changed its process of recording and
summarizing excise tax credits related to taxpayers' Form 720 tax returns.
As a result, IRS now obtains this excise tax credit information from the
applicable Treasury 90 Report. The Treasury 90 Report summarizes excise
tax credit information and is produced quarterly by IRS submission
processing campus systems. IRS has 10 submission processing campuses that
receive and process tax returns and payments.

IRS overstated certified receipts to the AATF by approximately $6.4
million. IRS discovered the error after it had sent the certification
letter to the FMS, and FMS had already recorded the true-up adjustment
using the certification letter. IRS corrected this error on the receipt
certification for the following quarter ended March 31, 2003. Therefore,
this error had no net effect on fiscal year 2003 distributions to the
AATF.

5. 	Review the distribution rates used by IRS to determine whether the
distribution rates for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) agree with the applicable laws.

Description of findings and results

The distribution rates used by IRS for tax on transportation of persons by
air (abstract 26), tax on use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) agreed with the applicable
laws in effect during all three quarters.

6. Review the Reports of Excise Tax Collection used in the certification
to determine if they contain significant20 collections from prior
quarters.

Description of findings and results

The Reports of Excise Tax Collection supporting IRS's certification to
AATF for the quarter ended September 30, 2002, contained approximately $43
million in AATF excise tax collections related to prior quarters. Of this
amount, approximately $21 million was from the quarter ended June 30,
2002. IRS attributed this delay to one taxpayer who did not file timely
and four tax returns with processing delays due to taxpayer or IRS errors.

The Reports of Excise Tax Collection supporting IRS's certification to
AATF for the quarter ended December 31, 2002, contained approximately $66
million in AATF excise tax collections related to prior quarters. Of this
amount, approximately $62 million was from the quarter ended September 30,
2002. IRS attributed this delay to two taxpayers who did not file timely
and two tax returns with processing delays due to taxpayer or IRS errors.

The Reports of Excise Tax Collection supporting IRS's certification to the
AATF for the quarter ended March 31, 2003, did not contain significant
prior quarter collections.

20For this test, "significant" is defined as $40 million, which represents
approximately 2 percent of the quarterly total certified to the AATF.

B. Refund/credit reclassification21

Perform the following steps on IRS's AATF refund/credit certifications for
the quarters ended December 31, 2002; March 31, 2003; June 30, 2003; and
September 30, 2003:22

1. 	Inspect the certification letters for authorizing signatures.
Description of findings and results The certification letters for all four
quarters had authorizing signatures.

2. 	Determine if evidence exists that a supervisor or another analyst
reviewed the certification letters and accompanying schedules.23

Description of findings and results

There was evidence that another analyst and a supervisor checked the
certification letters and accompanying schedules for all four quarters.

3. 	Recalculate the totals on the certification letters and accompanying
schedules to determine if they are mathematically correct.

Description of findings and results

The totals on the certification letters and accompanying schedules were
mathematically correct for all four quarters.

4. 	Trace the refund and credit amount for aviation gas and aviation O/T
gas24 from the schedules accompanying the certification letters to other

21IRS performs a quarterly reclassification of excise tax refunds and
credits originally entered into its master file as a personal or corporate
refund/credit. IRS refers to these reclassifications as "refund/credit
certifications." These amounts do not represent the total excise tax
refund/credit activity to the trust funds. Other routine excise tax
refunds and credits (e.g., overpayments), which are claimed on taxpayers'
Form 720 excise tax returns, are included in IRS's excise tax receipt
certification to trust funds.

22In order to meet certain reporting deadlines, IRS certified refunds and
credits for the fourth quarter of fiscal year 2003 as of September 5,
2003.

23IRS attaches a separate schedule to the AATF refund/credit certification
letter that includes the detailed excise tax amounts that support the
total amount shown on the letter. IRS compiles the amounts on these
schedules from submission processing campus systems and its Interim
Revenue Accounting Control System. IRS has 10 submission processing
campuses that process tax returns and taxpayer receipts.

24Aviation gas and aviation O/T gas are the only two excise taxes on the
AATF refund/credit certification.

summary refund/credit schedules. These other refund/credit summary
schedules summarize refund and credit data obtained from submission
processing campuses' records.

Description of findings and results

The refund and credit amounts for aviation gas and aviation O/T gas on the
schedules accompanying the certification letters agreed with the amounts
on the summary schedules for all four quarters.

III. Review of FMS adjustments

Perform the following steps on FMS adjustments to AATF excise tax
distributions for the quarters ended September 30, 2002; December 31,
2002; and March 31, 2003:

A. 	Compare the FMS adjustments made to the AATF for fiscal year 2003 with
original OTA estimates and IRS-certified amounts to see if they agree with
the

25

supporting schedules.

Description of findings and results

For the FMS adjustments made to the AATF, the original OTA estimates and
IRS-certified amounts agreed with the supporting schedule for all three
quarters.

B. 	Recompute the difference between the OTA estimates and final
IRS-certified amounts to see if the amounts agree with the differences
computed by FMS.

Description of findings and results

The independently recalculated differences between the OTA estimates and
the final IRS-certified amounts for the AATF agreed with the differences
computed by FMS for all three quarters.

26

These amounts were

25An FMS accountant compiles this schedule, called "Subsidiary Quarterly
Account of Estimates and Actual Related Taxes Appropriated to AATF." The
schedule computes the difference between IRS-certified amounts and the OTA
estimate for excise taxes, individually and in total, that relate to the
AATF. The schedule, along with OTA transfer forms and IRS certifications,
supports the FMS adjustment.

26A positive amount indicates that the FMS adjustment increased excise
taxes distributed to the trust fund. A negative amount, shown in
parentheses, indicates that the FMS adjustment decreased excise taxes
distributed to the trust fund. Since the adjustment amount is the
difference between OTA's estimate and IRS's certified amount, it may be
significantly affected by IRS's ability to certify receipts in the
appropriate quarter.

o  for the quarter ended September 30, 2002, ($44,195,000);

o  for the quarter ended December 31, 2002, ($27,813,000); and

o  for the quarter ended March 31, 2003, $(9,845,000).

IV. Review of IRS precertification for the quarter ended June 30, 200327

A. 	Determine if evidence exists that the supervisor or another analyst
checked the results and supporting worksheets.

Description of findings and results

There was evidence that another analyst and a supervisor checked the
results and supporting worksheets.

B. 	Recalculate the totals on the precertification to determine if they
are mathematically correct.

Description of findings and results

The totals on the precertification were mathematically correct.

C. 	Trace the amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77)28 from the precertification
back to the Reports of Excise Tax Collection and Treasury 90 Report.

Description of findings and results

The amounts for tax on transportation of persons by air (abstract 26), tax
on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) per the precertification agreed with the
related Reports of Excise Tax Collection and Treasury 90 Report.

D. 	Review the distribution rates used by IRS to determine whether the
distribution rates for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of

27To accommodate the Department of Transportation's accelerated reporting
date for fiscal year 2003, IRS performed a precertification of excise tax
collections for the quarter ended June 30, 2003. The data are for
information purposes only and the precertification does not constitute an
official certification.

28The certified amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) make up over 95 percent of
the precertified total to the AATF.

property by air (abstract 28), and tax on aviation fuel for commercial use
(abstract 77) agree with applicable laws.

Description of findings and results

The distribution rates used by IRS for tax on transportation of persons by
air (abstract 26), tax on use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) agreed with the applicable
laws in effect during the quarter ended June 30, 2003.

E. Review the Reports of Excise Tax Collection used in the
precertification to determine if they contain significant29 collections
from prior quarters.

Description of findings and results

The Reports of Excise Tax Collection supporting IRS's precertification for
the quarter ended June 30, 2003, did not contain significant prior quarter
collections.

F. 	Review the Collection Certification System information to determine
whether IRS omitted any significant returns30 from the precertification.
If so, report: (1) the average amount of AATF-related excise taxes from
these taxpayers' returns that were included in IRS's certification from
the four previous quarters and (2) the amount of AATF-related excise taxes
from these taxpayers' returns that were included in IRS's certification
for the quarter ended June 30, 2002.

Description of findings and results

IRS did not omit any returns of historically significant excise tax
taxpayers from its precertification to AATF.

V. 	Procedures performed on excise tax distributions to the AATF for the
quarter ended September 30, 2003

A. Determine if OTA's process for identifying and incorporating into its
trust fund

29For this test, "significant" is defined as $40 million. This represents
approximately 2 percent of the precertified total to the AATF.

30For this test, "significant returns" are defined as those from taxpayers
with a total quarterly excise tax liability equal to or greater than $10
million during each of the prior four quarters. Tax returns related
specifically to AATF from taxpayers with liabilities equal to or greater
than $10 million have, in the aggregate, historically accounted for over
85 percent of distributions certified to the AATF.

estimates31 the effect of new legislation on excise tax receipts was in
place during fiscal year 2003.

Description of findings and results

OTA's process for identifying and incorporating into its trust fund
estimates the effect of new legislation on excise tax receipts was in
place during fiscal year 2003. OTA prepares a tax rate table32 to capture
information relating to legislation that affects tax rates, tax basis,
accounts, and deposit rules in effect during the tax period.

B. 	Determine if there is evidence of review of the transfer forms and
supporting schedules.

Description of findings and results

There was evidence that another OTA economist reviewed the transfer forms
and supporting schedules for the semimonthly transfers affecting
distributions to the AATF for the quarter ended September 30, 2003.

C. 	Recalculate the totals on the transfer forms to determine if they are
mathematically correct.

Description of findings and results

The totals on the transfer forms affecting distributions to the AATF for
the quarter ended September 30, 2003, were mathematically correct.

D. 	Trace the transfer amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77),33 from the transfer forms,
through the

31OTA makes semimonthly estimates of excise tax collections for transfer
to trust funds. There are five semimonthly estimates for the quarter ended
September 30, 2003, which affect fiscal year 2003 distributions to the
AATF.

32OTA communicates this information to interested parties at Treasury, the
Federal Highway Administration, the Federal Transit Administration, and
the Department of Transportation. IRS uses the tax and distribution rates
from this table in its subsequent certification of collections to trust
funds.

33The transfer amounts for tax on transportation of persons by air
(abstract 26), tax on use of international air facilities (abstract 27),
tax on transportation of property by air (abstract 28), and tax aviation
fuel for commercial use (abstract 77) make up over 96 percent of the total
amount transferred to the AATF during the fourth quarter of fiscal year
2003.

34

supporting schedules, and back to the related source documents.

Description of findings and results

The transfer amounts for tax on transportation of persons by air (abstract
26), tax on use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) from the transfer forms did not agree
with the supporting schedules and source documents on the first two
semimonthly estimates affecting distributions to the AATF for the quarter
ended September 30, 2003. An error on one of OTA's electronic spreadsheets
resulted in the collection percentages for all tax types being
miscalculated. After we brought this to its attention, OTA corrected the
spreadsheet error so it did not affect the remaining estimates for the
period. However, since the effect of this error on the total quarterly
estimate would be only a fraction of a percent, OTA did not correct for
the effects of this error on the two affected semimonthly estimates.
Consequently, OTA understated its estimate for these four taxes to the
AATF by approximately $1.1 million.

VI. Other procedures

A. 	Compare total fiscal year 2003 excise taxes distributed to the AATF
with drafts of (1) FAA's fiscal year 2003 consolidated financial
statements and (2) BPD's fiscal year 2003 financial statements for the
AATF to determine if they agree.

Description of findings and results

The $8.8 billion of fiscal year 2003 excise taxes distributed to the AATF
agreed with the amount reported on the draft FAA consolidated financial
statements but did not agree with the amount on the BPD fiscal year 2003
financial statements for the AATF. The BPD fiscal year 2003 financial
statements for the AATF reported excise tax distributions to the AATF of
$8.7 billion. The difference is due to FMS's $105 million downward
adjustment for the quarter ended June 30, 2002, which FMS recorded in
December 2002. FAA's administrators included this transaction as part of
the fiscal year 2002 distributions to the AATF because it had time to
record the adjustment on its fiscal year 2002 financial statements, which
were issued in January 2003. However, BPD included this transaction as
part of the fiscal year 2003 distributions because it was recorded after
the November 1, 2002, issuance date of BPD's fiscal year 2002 financial
statements for the AATF.

34The source documents include the IRS report of excise taxes used to
derive the percentages applied to reported receipts, the Daily Treasury
Statement, the Monthly Treasury Statement, and the excise tax rate tables.

B. Procedures performed as part of the fiscal year 2003 IRS financial
statement audit:

1. 	From IRS's master files for the first 8 months of fiscal year 2003,
use DUS to select statistical samples of (1) total tax revenue receipts
and (2) refunds. For each sample item, test that the collection or refund
amount, tax period, and tax class35 from source documentation agree with
those recorded in IRS's master files.

Description of findings and results

Detailed testing of 169 revenue receipts and 50 refund sample transactions
showed that the collection or refund amount, tax period, and tax class
from source documents agreed with those recorded in IRS's master files.

2. 	Review selected submission processing campuses' monthly Treasury SF224
reconciliations to determine if IRS-reported revenue receipts were
properly classified and reconciled to Treasury FMS records. For refunds,
review selected IRS submission processing campuses' monthly Treasury
SF-224 reconciliations to determine if IRS-reported total refunds (all tax
classes) were materially36 reconciled to Treasury FMS records.37

Description of findings and results

Tax revenue receipts reported by selected IRS submission processing
campuses through the monthly Treasury SF-224 reconciliation process were
properly classified and materially agreed with Treasury FMS records.

Total refunds reported by the selected IRS submission processing campuses
through the monthly Treasury SF-224 reconciliation process materially
agreed with Treasury FMS records.

3. 	Perform procedures to determine whether tax revenue receipt balances
by tax class, including excise tax, per IRS's general ledger, materially
agree with IRS master files and Treasury records. For refunds, perform a
comparison of total refund balances between the master file, the general
ledger, and Treasury records.

35IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4.

36For the purpose of this procedure and procedure VI.B.3, we define
material as $20 billion. This represents approximately 1 percent of the
total tax revenue receipts collected by IRS in fiscal year 2003.

37IRS maintains records of refund balances by tax class in its master file
and reports this information monthly to Treasury on the SF-224. Treasury
provides IRS with a Statement of Differences (TFS-6652), which reports
differences between total refunds reported by IRS on the SF-224 and the
total refunds per Treasury records.

Description of findings and results

Tax receipt balances for all tax classes, including excise taxes, per
IRS's general ledger, materially agreed with IRS's master files and with
Treasury records.

Refund balances per IRS's general ledger materially agreed with the master
file and with Treasury records.

(196004)

The General Accounting Office, the audit, evaluation and investigative arm
of

GAO's Mission 	Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO's Web site (www.gao.gov) contains abstracts
and full-

Obtaining Copies of GAO Reports and Testimony

text files of current reports and testimony and an expanding archive of
older products. The Web site features a search engine to help you locate
documents using key words and phrases. You can print these documents in
their entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document files.
To have GAO email this list to you every afternoon, go to www.gao.gov and
select "Subscribe to e-mail alerts" under the "Order GAO Products"
heading.

Order by Mail or Phone 	The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C.
20548

To order by Phone: 	Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

To Report Fraud,	Contact: Web site: www.gao.gov/fraudnet/fraudnet.htm

                  Waste, and Abuse in E-mail: [email protected]

Federal Programs Automated answering system: (800) 424-5454 or (202)
512-7470

Public Affairs 	Jeff Nelligan, Managing Director, [email protected] (202)
512-4800 U.S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D.C. 20548

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
*** End of document. ***